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Insolvency and Bankruptcy – Gov. Response to COVID-19

Insolvency and Bankruptcy – Government’s response to the impact of Coronavirus

As we are all aware, Coronavirus has caused economies to stumble worldwide. In order to minimize the spread of the virus, major sections of the economy have been shut down. This has undoubtedly had a devastating impact on businesses and individuals alike. Otherwise healthy companies are now dealing with restricted cash-flows, and individuals are now without jobs.

Insolvency and Bankruptcy - Gov. Response to COVID-19

In a bid to keep cash-strapped businesses afloat and help struggling individuals, the Australian Government passed the Coronavirus Economic Response Package Omnibus Bill 2020, which was assented to on 24 March 2020. It is now known as the Coronavirus Economic Response Package Omnibus Act 2020 (“the Act“).

The Act has loosened the bankruptcy and insolvency provisions for a period of six months from the date of the Act. It is important to note that the Act does not apply retrospectively.

Some of the changes introduced by the Act are:

  • The threshold to issue a statutory demand against a company has been increased from $2,000.00 to $20,000.00.
  • The time period to comply with a statutory demand has been extended from 21 days to 6 months.
  • The threshold to issue a bankruptcy notice against an individual has been increased from $5,000.00 to $20,000.00.
  • The time period to comply with a bankruptcy notice has also been extended from 21 days to 6 months.
  • The directors’ personal liability for trading insolvent has been suspended for 6 months. Directors should bear in mind, however, that the Act does not abdicate them from their duties.
  • The Treasurer has been given broad powers to modify the Corporations Act 2001 (Cth) to relieve companies of their obligations to allow them to deal with unforeseen COVID-19 circumstances.

These short-term changes are intended to facilitate continuation of businesses in difficult circumstances caused by the Coronavirus. The effect of these measures will be to reduce pressure from directors allowing them to properly focus on saving their businesses and allowing time for individuals to get back on track financially. It will also prevent an influx of involuntary liquidations and bankruptcies.

 

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The above is a brief and general summary only of the recent legislative changes and you should obtain tailored advice for your individual circumstances. If you would like assistance with any of the above, do not hesitate to contact the Commercial, Property and Estate section of Watts McCray Lawyers.